Exam 8: Accounting for Intangibles

Buster Ltd had purchased goodwill to the value of $100 000 recorded in its consolidated financial statements.The goodwill has been determined to have an indefinite useful life.However,one year later Buster Ltd's cash generating units has been determined to have incurred an impairment loss of $13 000.What is the appropriate action for Buster limited to comply with AASB 138 Intangible Assets and AASB 136 Impairment of Assets?

What is the test for deferral of research costs as required by AASB 138?

Prior to the introduction of AASB 138 companies had found ways to circumvent the requirements of the revised (1996)version of AASB 1013.These methods included:

Continuously Contemporary Accounting (CoCoA)emphasises an entity's ability to adapt.Therefore goodwill is considered an important asset in this model.

Walking on Air is developing a new form of individual transport that will act like a personal hovercraft.Costs for the year ended 30 June 2012 are: Research \ 950000 Development costs \ 650000 Due to the high individual cost of items,sales of this 'prototype' model will be small and generate $100 000 per year over the next 4 years.Following that time,a new and cheaper consumer model will be under production based on the research developed for the prototype; however,it will require additional development expenditure.How much of the research and development cost should be expensed in the period ended 30 June 2012 and what amount should be amortised in the year ended 30 June 2006 (rounded to the nearest dollar)?

The argument by Pacific Dunlop (1994)is that the accounting treatment of goodwill,particularly the requirement to amortise it over 20 years,places Australian companies at a competitive disadvantage internationally.Miller (1995)analyses this view and argues that:

AASB 138 describes the distinction between the treatment of internally generated goodwill and purchased goodwill (as well as other intangibles)as arising because:

Prior to the introduction of impairment testing companies had attempted to manipulate their accounts through amortisation:

The gain or loss on the disposal of an intangible asset is determined as the difference between:

Intangible assets without a limited useful life cannot be recorded under AASB 138 as they cannot be amortised.

There is a concern that research and development may be reduced as a result of the new requirements in AASB 138 because:

Research of market potential prior to the launch of a product is permissible to be capitalised as an intangible asset.

Which of the following statements in regard to goodwill is/are correct in accordance with AASB 136 Impairment of Assets?

Which of the following statements is correct with respect to research and development expenditures in accordance with AASB 138?

An intangible asset may be recorded:

Internally generated identifiable intangible assets may be recognised for financial accounting purposes in Australia.

Which of the following statements is correct with respect to intangible assets?

Examples of intangible assets include:

The treatment of internally generated goodwill varies from purchased goodwill under AASB 138 in that:

Big Ltd has purchased 100% of Little Ltd for a cash payment of $800 000.The additional costs to Big Ltd to complete the purchase were $3000.An extract from the statement of financial position for Little Ltd at the date of acquisition shows: $\begin{array} { | l | r | r | } \hline & \mathbf {\$} & \mathbf {\$} \\\hline\mathbf {Assets } & & \\\hline \text { Current assets } & & \\\hline \text { Cash } & 12000 & \\\hline \text { Net accounts receivable } & 25000 & \\\hline \text { Inventory } & \underline { 80000 } & \\\hline \text { Total current assets } & & 117000 \\\hline & & \\\hline \text { Non-current assets } & & \\\hline \text { Land and buildings (net) } & 200000 & \\\hline \text { Vehicles (net) } & 90000 & \\\hline \text { Equipment (net) } & \underline { 157000 } & \\\hline \text { Total non-current assets } & & 447000 \\\hline & & \\\hline \text { Total assets } & & 564000 \\\hline & & \\\hline \mathbf { Liabilities } & & \\\hline \text { Accounts payable } & 8000 & \\\hline \text { Loan } & \underline { 100000 }& \\\hline & & \\\hline \text { Total liabilities } & & 108000 \\\hline & & \\\hline \mathbf {Net~ assets } & & \underline { 456000 }\\\hline\end{array}$ Additional information: The assets and liabilities of Little Ltd are stated at fair value except that: Land and buildings have a fair value of $300 000 Accounts receivable have a fair value of $20 000. Little owns a licence that has not been recorded in the accounts.Its fair value is $150 000. What is the amount of purchased goodwill that has been acquired by Big Ltd?